The Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK

Transcription

1 The Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK November 2012

2 The Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK November 2012

3 Department of Energy and Climate Change 3 Whitehall Place London SW1A 2AW Telephone: Website: Crown copyright 2012 Copyright in the typographical arrangement and design rests with the Crown. This publication (excluding logos) may be re-used free of charge in any format or medium provided that it is re-used accurately and not used in a misleading context. The material must be acknowledged as crown copyright and the title of the publication specified. For further information on this document contact: Energy Efficiency Deployment Office Department of Energy and Climate Change 3 Whitehall Place London SW1A 2AW This publication can be found on DECC s website: Published by the Department of Energy and Climate Change

4 The Mission Improving our energy efficiency is a key strategic objective for the Coalition Government. It is fundamental to decarbonising the UK, maintaining secure energy supplies, and increasing the productivity of our businesses. We have a proud history of making the very most of our resources and energy should be no different. This Coalition Government has a mission to seize the energy efficiency opportunity, accelerating the deployment of twenty-first century energy saving measures through: connecting energy efficiency knowledge and technologies to finance seeking strong returns; supporting energy efficiency innovation; harnessing the power of improved energy use information, driving its availability and disclosure; and encouraging collective action to act on this new and better information. As set out in this strategy the benefits to energy efficiency can be significant, including: boosting growth and creating jobs in our economy; saving households and businesses money on fuel bills; creating a more sustainable and secure energy system; delivering cost effectively against our climate change goals; and reducing energy imports. The December 2011 Carbon Plan was clear that, if we are to cut our green house gas emissions by 80% by 2050, energy efficiency will have to increase dramatically across all sectors. It set out four possible scenarios for 2050, relative to 1990, which imply a per capita demand reduction of between 31% and 54% relative to This Government has already made progress through radical initiatives such as the Green Deal, but this Strategy pinpoints the remaining energy efficiency potential within the UK economy and summarises the actions we will now take to realise this.

7 1 Ministerial Foreword Energy efficiency belongs at the heart of a low-carbon economy. By reducing energy use and cutting down on waste, we can reduce energy bills, make our energy system more sustainable, and drive down greenhouse gas emissions. Too often, governments have neglected the role that energy demand reduction can play in managing our energy system. Yet measures that reduce demand can contribute in a more cost-effective way to meeting our energy and climate goals than supply-side measures. That s why energy efficiency as a way of reducing demand takes pride of place at the centre of the Coalition Government s policy framework. I want Britain to get as close as possible to using only the energy we really need. We could be saving 196TWh in 2020, equivalent to 22 power stations through, socially cost-effective investment in energy efficiency. That is around 11% lower than the business as usual baseline. It could also reduce carbon emissions by 41 MtCO 2 e, contributing to achieving our carbon budgets. Britain s homes have been built and developed over hundreds of years, and their energy efficiency varies from good to dreadful. Bringing as many homes as possible up to the level of the best is not only a worthwhile investment; it also presents a huge business opportunity, including a chance for British companies to develop expertise which can be exported to overseas markets. This strategy sets the direction for energy efficiency policy for the coming decades. It makes clear our ambition, the barriers that we need to address, and the additional steps we are taking now to stimulate the energy efficiency market. It shows how we will act to connect finance with demand, encourage innovation, and make energy efficiency information more accessible to the consumer. Energy efficiency can reduce energy bills for households and businesses, and can boost the economy in a sector with great potential for future growth, driving innovation in the process. The prospect of achieving more with less energy is an exciting one, and this strategy sets out the opportunity in full. Edward Davey Secretary of State for Energy and Climate Change

9 3 Clarification of scope The Energy Efficiency Deployment Office (EEDO) EEDO has developed this Strategy, drawing from expertise across Government and considering energy efficiency potential across the UK economy, including in businesses, buildings, products and transport. It is the first in a series of documents that EEDO will produce. EEDO has been set up within DECC to support the delivery of our existing energy efficiency policies, by improving our evidence base and analysis, ensuring effective delivery against the observed energy efficiency potential in the economy, and by bringing coherence to the Government s offer to the consumer. Beyond DECC, EEDO forms an inclusive initiative with UK Government Departments, the Scottish and Welsh Governments represented on its quarterly Steering Board and Northern Ireland having observer status. As the evidence base is developed, the objective will be to share information, by region and sectors where possible, and consider solutions to achieving further energy efficiency potential as a group. Devolution Any development of policy in the area of energy efficiency needs to take into account the following arrangements: that, in Scotland 1 and Wales, the encouragement of energy efficiency is devolved, while the regulation of energy efficiency is reserved; and that the promotion and regulation of energy efficiency is devolved to Northern Ireland. Furthermore, as policy ideas in this Strategy are developed they will need to take account of where they may impact on other policy areas that are devolved to Scotland and Wales. Northern Ireland are able to draw from EEDO s work as it considers its own future energy efficiency policy. This approach is reflected in this Strategy, with differences between the policy frameworks of devolved Governments clearly referenced. 1 Low Carbon Scotland, the Scottish Government s first report on proposals for meeting the annual climate change targets set under the Climate Change (Scotland) Act

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11 5 The Energy Efficiency Opportunity in the UK 1. The UK now has a huge opportunity to optimise the energy use of both domestic and business customers, reducing bills and/or warming homes, while at the same time, delivering a more sustainable society. Individuals can do this through taking action to reduce their demand, such as turning off energy using products that are not in use, buying products that are more efficient or installing energy efficiency measures in their homes. Businesses can take similar actions, reducing their long term operating costs. The critical importance of energy efficiency to our long-term energy policy is reflected in last December s Carbon Plan This strategy identifies four overarching barriers to greater energy efficiency that have to be overcome. Action is already being taken, but if we further pursue these barriers we will be able develop a stronger, self sustaining energy efficiency market and more consumers will be able to see a return, creating positive reinforcement of the potential of energy efficiency. The four corresponding barrier annexes to this strategy 5 outline those policies that are already in place to tackle these issues and provide case studies where public and private sector organisations have already been successful in achieving greater energy efficiency, realising the associated benefits. 2. Many of the views received in response to the February 2012 Energy Efficiency Call for Evidence 3,4 recognised huge potential but asked for greater certainty on what was needed to improve our energy efficiency at a national level. This response sets out the long term direction required as well as specific actions that will be taken now. This is an Energy Efficiency Strategy to maximise existing policy and realise the wider energy efficiency potential that is available in the UK economy. 4. Our broad assessment of the policy framework is that the energy efficiency agenda for households is well covered by existing initiatives, although there is still a need to maximise the way these policies work. There is, however, particular further interest in significant commercial and industrial energy efficiency potential not already covered by the existing policy. We estimate that through socially cost-effective investment in energy efficiency we could be saving 196TWh in 2020, equivalent to 22 power stations 6,7. 2 Carbon Plan, DECC, December Energy Efficiency Call for Evidence, DECC, 8 February The Government s Call for Evidence summary of responses can be found at Annex F of this strategy. 5 Annexes A-D. 6 The costs and benefits of measures have been calculated from the societal perspective, in line with the appraisal guidance set out in the Green Book and the supplementary guidance provided by the Inter-departmental Analysts Group on valuing carbon emissions avoided, energy savings and air quality improvements. This means that the value of energy savings is based on the resource costs, not the retail price (and non-traded carbon emissions and air quality impacts are included). Capital costs are assumed to be paid upfront and financing costs are excluded. The costs and benefits are discounted over time at the social discount rate. A measure that is cost-effective from the societal perspective may not be cost effective for the individual investor. For more detail on the methodology of the EE-MACC, see Annex E. 7 Assumption of a power station with 1 GW capacity operating full-time..

12 6 Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK 5. The potential for the 2020s is even greater. Considered in this way, energy efficiency can play a major role in the UK s balancing of energy demand and supply. 6. Box 1 provides a summary of additional actions we are taking alongside this strategy in order to help stimulate a self sustaining energy efficiency market. These actions and others across the broad energy efficiency spectrum are covered in more detail within the barrier annexes. Understanding energy efficiency Energy efficiency is a measure of energy used for delivering a given service. Improving energy efficiency means getting more from the energy that we use. 7. There are different ways to improve energy efficiency. For example: Innovation can lead to the equal or greater output with less energy. Cutting out wasted energy reduces energy needed while maintaining output. Box 1: Further action taken as part of this Energy Efficiency Strategy A key focus is supporting the finance market through: publishing guidance on financing energy efficiency for the public sector; announcing a research project with ENWORKS to understand the process, costs and benefits of financed energy efficiency projects; initiating an assessment of compatibility of energy efficiency investments with the public sector budgeting framework; taking the RE:FIT programme, which facilitates the public sector use of the ESCO market, nation-wide and the Electricity Demand Reduction project. We are going further on energy efficiency innovation by: announcing three new energy efficiency Technology Innovation Needs Assessments (TINAs); sponsoring three new energy efficiency Green Business Awards; and, reviewing the way that new innovative energy efficiency measures are reviewed and accredited. We are working to strengthen the evidence base through: commissioning research into the potential of advanced heating controls; working with the IEA to explore all benefits of energy efficiency; setting out a future DECC Evidence Strategy; and co-ordinating with Research Councils UK and others, to support the development of a knowledge hub for the refurbishment of existing homes as well new Energy Demand Research Centres, announced with this strategy. A further focus area is controls and information, where we will: launch a behavioural trial with the John Lewis Partnership on whether providing information on lifetime electricity running costs helps consumers; making funding available to increase the proportion of facilities managers receiving specialist energy efficiency training; develop a trial to study the impact of advice on how to use heating controls provided when boiler checks are carried out; and announce a forthcoming DECC Community Energy Strategy as well as commission a Community Energy Efficiency Outreach Programme with Groundwork UK. Within audits and standards, we will focus on: beginning the process for implementing energy audits for non-sme enterprises, as required by the Energy Efficiency Directive; and seeking the ISO50001 Energy Management Standard accreditation for DECC.

13 The Energy Efficiency Opportunity in the UK 7 Heating technologies, such as heat pumps, can deliver greater output for less supplier energy. 8. Through greater energy efficiency we can use less primary fuel or power to enjoy the same level of output. For example, by improving manufacturing equipment it is possible to produce the same or more with lower overheads. Improved energy efficiency can provide many economic, social and environmental benefits for the UK and yet we are not doing all we can to realise them. 9. Clearly, this is not a new policy agenda. The first energy demand reduction policies were developed by the Department of Energy in 1974 in response to oil shocks and many different approaches have been taken since to improve our energy use efficiency, with some success 8. Approaches have changed, as have the ways in which we have used energy, but there has never been a quick fix. So why an Energy Efficiency Strategy now? 10. We must continue to find solutions, such as those provided by the Green Deal and Smart Meters, which allow us to tap into the cost effective energy efficiency improvements that are right there in front of us; whether it be through more efficient industrial processes, better use of heat, or simply installing energy efficient lighting. The energy efficiency opportunity 11. The energy efficiency sector in the UK already accounts for about 136,000 jobs and had sales of 17.6 billion in 2010/11. Sales in this sector have grown by over 4% per year in the UK since 2007/08, and are projected to grow by around 5% per year between 2010/11 and 2014/15. However, there is more potential in the market Stephen Chu, the US Secretary of Energy, has said that energy efficiency is not just low hanging fruit; it is fruit that is lying on the ground 10. With the right market in the UK we could unlock more of the potential for energy efficiency investment, helping to generate growth and jobs. Alongside the associated carbon reductions, improvements in our energy security by reducing demand for imported Box 2: Why now? There are good reasons to set the direction on improving energy efficiency in the UK: finding ways to do more (or the same) with less makes economic sense; it can help households and businesses reduce their energy bills at a time of increasing energy prices; many energy efficiency improvement schemes are approaching implementation and we need to clearly set out the linkages and the collective ambition; we need to be clear as to the role of demand side management as our electricity generation market is reformed; and energy efficiency needs to be taken forward as a cost effective solution to carbon reduction to meet our carbon budgets. 8 See Figure 3 for the trend of consumption per capita in the UK. 9 K-Matrix, Low Carbon and Environmental Goods and Services data ( ). The energy efficiency sector has been defined as the energy management and building technologies subsectors. 10 Steven Chu, The Times, London, 26 May

14 8 Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK energy, warmer homes and lower resulting energy bills mean increasing energy efficiency is win-win-win. We must, and will, make it happen in the UK. Greater energy efficiency may also support improvements in wider resource efficiency. Energy efficiency potential in the UK economy 13. Responses to the Energy Efficiency Call for Evidence highlighted the significant energy efficiency potential in the UK economy and detailed analysis confirms that there is significant cost effective potential. The Energy Efficiency Marginal Abatement Cost Curve (EE-MACC) estimates the energy savings through implementing energy efficiency measures. It is based on detailed modelling of ambitious scenarios for the potential for investment in energy efficiency from different sectors of the economy, based on current evidence. The more cost-effective a measure, the closer it is to the left-hand side of the chart. For more detail on the methodology and assumptions see Annex E. 14. We estimate that through socially costeffective investment in energy efficiency we could be saving 196TWh in 2020, equivalent to 22 power stations 11,12. Were all this potential to be realised, final energy consumption in 2020 could be 11% lower than the business as usual baseline. This potential can be found across the UK economy and realising this could have significant benefits for businesses and households. For example, the EE-MACC analysis suggests there is potential for cost effective energy efficiency in commercial buildings and industry over and above that which we expect to be realised through policies such as the EU-ETS, CCAs or CRC (DECC analysis suggests that around 14% of total energy use in the business and public sector are in organisations that are not included in these policies). 15. Further, there is the potential to save energy through changing how we use it, both in domestic and business settings, while maintaining the benefits delivered. This potential is not fully captured within the framework of the EE-MACC. Developing a stronger understanding of the potential for energy efficiency and evaluating the impact of policy on incentives to invest in energy efficiency is a priority for EEDO. As the evidence base improves, the detailed assessment what the potential is for energy efficiency investment may be adjusted. The benefits of energy efficiency 16. Economic growth: Installing energy efficiency measures often requires local labour 13, and the investment has the potential to boost employment and economic growth. The business community see this as important in the current global economic climate 14,15. There are also long-term growth benefits. For example, lower domestic energy bills can lead to higher disposable incomes that can be spent elsewhere in the economy, while businesses can see a reduction in running costs and so an increase in productivity. Simple changes in energy use 11 The costs and benefits of measures have been calculated from the societal perspective, in line with the appraisal guidance set out in the Green Book and the supplementary guidance provided by the Inter-departmental Analysts Group on valuing carbon emissions avoided, energy savings and air quality improvements. This means that the value of energy savings is based on the resource costs, not the retail price (and non-traded carbon emissions and air quality impacts are included). The capital costs are assumed to be paid up front and financing costs are not included. The costs and benefits are discounted over time at the social discount rate. A measure that is cost-effective from the societal perspective may not be cost effective for the individual investor (and vice versa). 12 Asssumption of a power station with 1 GW capacity operating full-time. 13 Last year Groundwork, a third sector organisation, helped 4,200 people progress into training, education or employment, many of them into green jobs (see Annex D for more detail). 14 Economist Intelligence Unit, Energy Efficiency and energy savings: a view from the buildings sector, October 2012, 15 The colour of growth: Maximising the potential of green business, CBI, July 2012.

15 The Energy Efficiency Opportunity in the UK 9 Figure 1: 2020 Energy Efficiency Marginal Abatement Cost Curve Cost effectiveness as measured by NPV/lifetime energy savings /MWh Energy savings in 2020 TWh For details of the measures see Figure E1 in Annex E Domestic Commercial and public sector Industry Transport -150 Products Notes: For more detail on the methodology and assumptions see Annex E consistent with the 2012 DECC energy projections and supplementary Green Book Guidance appraisal guidance. The business as usual baseline excludes policies that have been introduced since The net present values are calculated in 2012 terms. Products policy estimates become increasingly uncertain beyond 2020, where the market may naturally deliver more efficient products this will be reviewed in future. The energy savings from Tranche 1 and 2 of products policy within the industrial sector have been included in the potential for energy savings in industry. Smart meters estimates are consistent with cost and savings assumptions as applied in the smart meter impact assessment and costs required for the delivery of the policy are taken into account (i.e. not only the asset costs for the provision of the technology are reflected). To be consistent with the methodology used here, financing costs have been excluded. The transport analysis is consistent with that included in the Carbon Plan (December 2011). The assumptions, on fuel prices and growth for example, have not been revised since. Estimates for the energy savings from CERT (20% uplift and extension) and CESP are consistent with the projected net energy savings set out in the DECC energy projections. The estimates of energy savings is net of comfort taking, but we have not valued comfort taking for these measures. The NPV for these policies is estimated based on discounting to 2009.

16 10 Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK Figure 2: UK energy efficiency exports in 2010/11 12 Exports from the UK Energy Efficiency Sector in 2010/11 were worth 1.8 billion 16 K-Matrix, Low Carbon and Environmental Goods and Services data ( ). The figure shows the size of UK Energy Efficiency Sector exports in 2010/11 to 50 other countries. These are the countries with the highest sales from their own Low Carbon and Environmental Goods and Services sectors, based on when the data series started in 2007/08.

17 The Energy Efficiency Opportunity in the UK 11 behaviour can deliver some of these benefits with little up-front cost. 17. Longer term investment in energy efficiency technology can also lead to a virtuous circle as innovation leads to cost reductions which can make it cheaper and easier to invest in energy efficiency in the future. Developing our innovative capacity in technology, materials or business models for energy efficiency opens up the potential for increasingly significant export opportunities for the UK as the global effort to combat climate change ramps up. 18. Thinking more broadly than headline export figures, we can see real examples of UK expertise shaping people s approach to energy efficiency across the globe. For instance: Mark Group using the know-how developed over four decades in the UK to establish successful energy saving operations in the USA, Australia and New Zealand. CO 2 balance supporting the distribution of energy efficient stoves in Tanzania. Arup carrying out energy efficiency audit work on university campuses in the USA. The BRE (Building Research Establishment) are working with partners in China and Brazil to develop Green Building Demonstration Parks where UK companies can showcase their world-class building techniques, products and services for homes and communities and help set the standard for sustainable development. 19. Economic studies show that improved energy efficiency can bolster productivity, increasing growth and reducing inflation. A study of the Government s energy efficiency policy between estimated that these policies increased the annual rate of economic growth by around 0.1 percentage points within that period 17. The study also estimated that these policies resulted in roughly 270,000 additional jobs in 2010 owing to the cumulative impact of higher growth. Looking forward, DECC analysis suggests that the Box 3: Energy efficiency and the DECC fuel poverty strategy for England Tackling fuel poverty is about helping people on low incomes who cannot keep warm at reasonable cost. There is some evidence that certain vulnerable groups, such as households with older people and children, can be the most at risk of health detriments associated with cold homes, such as respiratory illnesses. Energy efficiency has a clear role to play in assisting these households, insulating them from the cold as well as the effects of rising energy prices. Earlier this year, Professor John Hills published his review of fuel poverty. In it he proposed a new framework for measuring fuel poverty, which the Government has announced it intends to adopt subject to the outcome of an ongoing consultation. The Government also announced it would publish a new fuel poverty strategy in Under the proposed new measurement approach, a household is fuel poor if it is low income and has high energy costs relative to all other households. A key factor driving energy costs is, of course, energy efficiency. As such, the Government s new strategy will set out how energy efficiency improvements can be made in such households, to provide a sustainable means of reducing costs. 17 Barker, T., Ekins, P., & Foxon, T. (2007). The macro-economic rebound effect and the UK economy. Energy Policy,

18 12 Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK Green Deal and ECO alone could support up to 60,000 jobs across the UK in Savings for domestic and business consumers: As highlighted as part of the recent Big Energy Saving Week, improving the UK s energy efficiency is central to delivering a fair deal for the consumer. UK households are already benefitting from improvements in energy efficiency such as heating efficiency and insulation. Building Research Establishment modelling suggests that, if no energy efficiency gains had been made since 1970, current energy use would be almost double their current levels, adding about 1,000 to the average annual energy bill 19. Energy efficiency will continue to have a role in driving long term reductions in household energy bills. 21. Wellbeing can also be enhanced through increased energy efficiency. For example, a higher disposable income, as a result of lower energy bills, can allow increased spending on other necessities. In addition, the health benefits from properly installed energy efficiency measures can be significant. It is possible to quantify health benefits in quality of life terms, in line with the principles of the Department of Health/NICE guidance. DECC modelling of the impact of the installation of solid wall insulation in all properties in England, gives a total improvement in the health of those individuals in the properties of 3.5bn 5.0bn over the lifetime of the measures. If all cavity walls reported unfilled in 2009 were also filled this would provide a further monetised health benefit of 4bn 6bn over lifetime of the insulation Some of the financial savings from energy efficiency measures may be spent on energy consuming goods and services: the rebound effect. This means that the overall impact on energy consumption is smaller, although consumers may feel a benefit from the additional energy consumption. The nature of rebound effect will vary depending on the energy efficiency measures adopted. For example if someone increases the level of insulation in their property, the direct rebound effect would be an increase in the temperature to which the house is heated and an indirect rebound effect would be using the savings on heating bills to buy an additional television. It is possible that the direct rebound effect might be reduced through providing advice when energy efficiency measures are installed. 23. Energy efficiency is also one of the central pillars of the Government s efforts to tackle fuel poverty. Improving the energy efficiency of the home is often the most cost-effective way of making a sustained reduction in household heating costs and removing that household from fuel poverty. Professor John Hills Review of Fuel Poverty in England 21 included a consideration of the role of energy efficiency in helping vulnerable groups (see box 3). 24. Emission reductions: To deliver against our greenhouse gas emission targets over the coming decades in the most cost effective way, we need energy efficiency to improve significantly across all sectors. The 2011 Carbon Plan 22 sets out scenarios through which the UK could meet its legally binding target to reduce greenhouse gas emissions by 80% between 1990 and The Carbon Plan 2050 scenarios require energy efficiency to contribute a reduction in final energy consumption per capita between 2007 and 2050 of 31-54%. Figure 3 shows that, after moving to a 2011 baseline, these Carbon Plan Scenarios now require per capita savings of between 21% and 18 Final Impact Assessment for the Green Deal, DECC, June Energy savings from Energy Consumption in the UK table 3.18 and current energy prices. 20 Preliminary modelling that assumes the insulation measures are valued over their lifetimes and are appropriately installed in line with regulations and industry guidance. 21 Scotland, Wales and Northern Ireland have a separate fuel poverty strategy and fuel poverty programmes. 22 Carbon Plan, DECC, December 2011.

19 The Energy Efficiency Opportunity in the UK 13 Figure 3: UK final energy consumption per capita compared against carbon plan scenarios: , baseline Consumption per capita (kwh/capita) 30,000 25,000 20,000 15,000 10, Policy package to 2030 to be developed X Scenario 1, 21% Scenario 2, 35% Scenario 3, 43% Scenario 4, 47% 5, % between 2011 and The current policy package is on track to be comfortably within this range through to 2020 but additional action is needed to maintain progress after and energy efficiency tends to be a cost-effective option. Box 4: DECC 2050 Scenarios In the 2011 Carbon Plan, DECC set out four scenarios to achieve reductions in greenhouse gases of 80 per cent between 1990 and These scenarios were set against a 2007 baseline. Scenario 1: Low energy efficiency and high nuclear generation (31% energy per capita saving from 2007 baseline). Scenario 2: High Carbon Capture & Storage (CCS) and additional Bio-energy (43% energy per capita saving from 2007 baseline). Scenario 3:CORE MARKAL scenario (50% energy per capita saving from 2007 baseline). Scenario 4: High energy efficiency and higher renewables (54% energy per capita saving from 2007 baseline). *Note: Figures 3 and 4 these scenarios have been extrapolated to a 2011 baseline. 23 Energy Efficiency Statistical Summary 24 Low Carbon Scotland (http://www.scotland.gov.uk/topics/environment/climatechange/scotlands-action/lowcarbon/rpp), the Scottish Government s first report on proposals for meeting the annual climate change targets set under the Climate Change (Scotland) Act 2009 details areas of joint working such as the establishment of the Green Deal and ECO and also highlights Scottish initiatives such as its approach to retrofitting insulation in existing homes and Scotland s targets for renewable heat and electricity.

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